Marijuana Stocks

Should you put your hard-earned money into marijuana stocks? We detail the investment opportunities, risks, and regulations in the cannabis space.

The marijuana industry is expected to triple in the next five years -- and many investors are looking to profit.

As states and entire countries decriminalize or legalize cannabis and/or its components, there are loads of opportunities for entrepreneurs and existing companies.

But as in any nascent industry, there are also loads of risks and bad actors. Whether you're a first-time investor or a seasoned veteran, it pays to understand all of the moving parts.

This guide will get you up to speed quickly.

How to Invest in Marijuana Stocks

Follow these seven steps if you're thinking about buying cannabis stocks. The following is a summary, but we encourage you to read the entire article linked below for all the details.

1. Understand the types of marijuana products.

  • There are two types of cannabis products: medical marijuana vs. recreational marijuana.
  • Cannabidiol (CBD) is a cannabinoid that is different than the psychoactive delta-9 tetrahydrocannabinol (THC).

2. Know the different types of marijuana stocks.

  • Marijuana growers like Canopy Growth Corporation (NYSE:CGC)
  • Cannabis-focused biotechs like GW Pharmaceuticals (NASDAQ:GWPH)
  • Providers of supporting products and services like Scotts Miracle-Gro (NYSE:SMG)

3. Understand the risks of investing in marijuana stocks.

  • Legal and political risks
  • Supply/demand imbalances
  • Risk in those that are over-the-counter stocks

4. Know what to look for in a marijuana stock.

  • Normal stock considerations, including:
    • Management team
    • Growth strategy
    • Competitive position
    • Financials (ideally either profitability or strong balance sheet)
  • Cannabis production costs
    • "All-in" cost of sales per gram
    • Cash cost per gram
  • For Canadian companies, the extent of international operations and distribution
  • Dilution risks via warrants and convertible securities

5. Evaluate the top marijuana stocks and exchange-traded funds (ETFs).

6. Invest carefully.

  • For many, avoiding individual investments in the marijuana space entirely is the right call.
  • For those who buy in, keeping your marijuana exposure to a small percentage of your overall portfolio limits your risk.
  • Pure plays are riskier than more diversified plays.

7. Monitor changing industry dynamics closely.

  • Laws, regulations, competitive forces, and the business strategies of the companies themselves will all change rapidly over time.

Read more: How to Invest in Marijuana Stocks (Note: includes a list of every major marijuana stock)

But, Really, Should I Buy Marijuana Stocks?

We just went step-by-step through how to invest in cannabis, but just because there's a trendy new sector with lots of press and potential growth doesn't mean you need to put your hard-earned money in it. After all, if you buy broad index funds, you're covered no matter what sector of the stock market does well.

Think through the pros and cons as you read on: Should You Invest in Marijuana Stocks?

Marijuana Legalization in the U.S.: The History and the Future

One of the biggest variables in cannabis investing is to what extent marijuana will be decriminalized or legalized within the United States, both on a state-by-state basis and on a federal basis.

The link below provides a quick spin through what we've seen so far, from decriminalization efforts starting in 1973 to legalization efforts beginning in earnest in 1996 to the political signs of where we seem to be heading.

Read on: Timeline for Marijuana Legalization in the United States: How the Dominoes Are Falling

More Information on Canadian Marijuana Stocks

There's been tremendous interest in Canadian cannabis stocks, because on October 17, 2018, recreational use of marijuana became legal in Canada (it had been legalized on a medical basis since 2001).

Beyond consumption by Canadians, the upside thesis involves operations or distribution to other countries that have legalized or may legalize marijuana to various extents. This includes Germany and particularly the large market on Canada's southern border.

Read on: Everything You Need to Know About Investing in Canadian Marijuana Stocks

Commonly Confused Cannabis Terms

One of the difficulties in understanding the marijuana industry is the jargon. Fortunately, it's not too complicated once you get a handle on a few main terms.

Marijuana vs. cannabis

Cannabis is the scientific name of the plant (the genus that houses three species). For an investor's purposes, marijuana is synonymous with cannabis, as are more informal nicknames like pot, weed, ganja, dope, grass, 420, sticky icky, etc.

CBD vs. THC

Cannabis is made up of nearly 500 chemical constituents, including many dozens of cannabinoids (substances that act on the body's cannabinoid receptors).

The two most commercially relevant of these cannabinoids are delta-9 tetrahydrocannabinol (THC) and cannabidiol (CBD). Only THC is psychoactive (i.e., makes you high).

Hemp

Hemp is a strain of a species of cannabis with relatively low levels of THC and relatively high levels of CBD. It has many industrial uses like providing fibers to make rope and clothing.

Recent articles

Cannabis Buds Marijuana Weed Pot Cash Money Legal Canada US Getty

Canopy Growth's Q4 Report: 5 Numbers You'll Want to Know

The largest pot stock in the world is set to report its fiscal fourth-quarter and full-year results on May 29.


Dollar sign with question mark shadow

Don't Believe Aurora Cannabis' Profitability Spin

When the Canadian cannabis producer uses the word "profitable," it doesn't really mean profitable.


Stopwatch Time to Buy Stock Market Correction Getty

Got $3,000? These 5 Beaten-Down Stocks Are Begging to Be Bought

Opportunity is knocking for investors with a long-term mindset.


A stock market trading graph

Aphria Shoots 4.5% Higher on News of Move to Nasdaq

The marijuana company will retain its current ticker symbol.


US currency in the shape of a marijuana leaf

Weekly Cannabis Stock News: Aurora Cannabis Gets Back in the Acquisition Game

The busy Canadian company will fork over at least $40 million for a U.S.-based CBD company.


Marijuana in a corporate grow space

Why Shares of Village Farms International Were Rocketing Higher on Tuesday

The company is a partner in a joint venture that was just awarded a crucial license by the Canadian government.


Smoldering Fire Cannabis Bud Marijuana Weed Pot Canada US Getty

Aurora Cannabis' Exeter Sale Confirms the Need for Industrywide Writedowns

Most Canadian licensed producers are likely sitting on underutilized or unused assets that they won't be able to move.


GettyImages-187921657

3 Top Pharma Stocks to Buy Right Now

Promising new drugs will drive these companies' stocks skyward.


cannabis greenhouse

Tilray's CEO Expects at Least a Dozen Cannabis Bankruptcies in 2020 -- Is He Right?

COVID-19 could be what seals the fates of many pot stocks this year.


Cannabis leaf on top of $100 bills

Better Marijuana Stock: Canopy Growth vs. Green Thumb Industries

Which stock wins in a matchup between the biggest Canadian cannabis producer and one of the biggest U.S. cannabis operators?


49493490508_e0316b94f7_k

The 1 Thing Trump and Biden Agree On (and You're Not Going to Like It)

Ironically, the one issue Trump and Biden see eye-to-eye on puts them in direct opposition with two-thirds of the public.


cannabis plant

Is Aurora Cannabis a Buy After Its Q3 Results?

The company's revenue was an improvement from the previous quarter, but Aurora still posted a loss.


Cannabis leaf in shopping cart

Better Marijuana Stock: Aurora Cannabis vs. Cronos Group

Which stock wins in a battle between these two well-known Canadian cannabis producers?


GettyImages-1051647998

Why Is Everyone Talking About Aurora Cannabis?

Is the pot company ready to stage a comeback?


GettyImages-1172154577

Could Aurora Cannabis Turn Its Q3 Success Into Long-Term Growth?

Beating revenue expectations doesn't make up for a lack of efficiency in its value chain.


Marijuana bud with Canadian flag in the background

Canada Licensed Marijuana Sales Jumped 19% in March

"Stocking up" behavior helped boost dispensary revenue.


Marijuana leaf with stethoscope

Why Marijuana Stock Cronos Group Shot 8% Higher on Friday

An early-stage research study indicates a cannabis substance may be effective in treating COVID-19.


Risk-GettyImages-522766619

Why Aurora Cannabis Stock Dropped on Friday

Could the marijuana leader's stock be worth only $10?


Generic marijuana dispensary sign

Massachusetts Dispensaries to Resume Recreational Marijuana Sales on Monday

The state had been one of the few not to classify recreational pot dispensaries as essential businesses during the early stages of the coronavirus pandemic.


Marijuana USA Cannabis Flower Pot Weed Scale Joint Bag Legal Getty

Aurora Cannabis Finally Enters the U.S. -- Here's Why You Should Hold the Applause

Aurora's acquisition history is less than stellar.